quizlet Flashcards
(137 cards)
1
Q
What is the ‘New’ view on globalization?
A
A force sweeping through the world in recent times.
2
Q
What is the ‘Evolutionary’ view on globalization?
A
A long-run historical evolution since the dawn of human history.
3
Q
What is the ‘Pendulum’ view on globalization?
A
One that swings from one extreme to another from time to time.
4
Q
What is Foreign Direct Investment (FDI)?
A
Direct investment in, control, and management of value-added activities in other countries.
5
Q
What are the political views on FDI?
A
Radical View, Free Market View, Pragmatic Nationalism.
6
Q
What are the benefits to a country receiving FDI?
A
Capital Inflow, Technology Spillover, Advanced Management Know-How, Job creation.
7
Q
What are the costs to a country receiving FDI?
A
Loss of Sovereignty, Adverse effects on competition, Capital outflow.
8
Q
How do resources and capabilities influence competitive dynamics?
A
Resource similarity and market commonality can yield a powerful framework for competitor analysis.
9
Q
What is resource similarity?
A
The extent to which a given competitor possesses strategic endowment comparable, in terms of both type and amount, to those of the focal firm.
10
Q
How does resource similarity impact competitive dynamics?
A
Firms with a high degree are likely to have similar competitive actions.
Example: Starbuck’s instant coffee & McDonald’s iced coffee.
11
Q
What are the classical theories of international trade?
A
Mercantilism, Absolute advantage, and Comparative advantage.
12
Q
What is the modern theory view?
A
Dynamic.
13
Q
What is the classical theory view?
A
Static.
14
Q
What is absolute advantage?
A
The economic advantage one nation enjoys that is superior to other nations.
15
Q
What is comparative advantage?
A
The advantage one economic activity nation enjoys in comparison with other nations (relative, not absolute).
16
Q
What is mercantilism?
A
A theory that suggests that the wealth of the world is fixed and that a nation that exports more and imports less will be richer.
17
Q
What are the features of the product life cycle?
A
New, Maturing, and Standardized.
18
Q
What is strategic trade?
A
Intervention by governments in certain industries can enhance their odds for international success.
19
Q
How are supply and demand related to the exchange rate of a country?
A
The price of a commodity, a country’s currency, is fundamentally determined by this. Strong demand leads to price hikes; oversupply results in price drops.
20
Q
Which theory came first?
A
Mercantilism.
21
Q
What is the most effective way to limit foreign exchange rate exposure in the forward direction?
A
Forward transactions, an act known as currency hedging.
22
Q
What is transaction risk?
A
The exchange rate risk associated with the time delay between entering into a contract and settling it.
23
Q
What is hedging?
A
A transaction, such as forward transactions, that protects traders and investors from exposure to the fluctuations of the spot rate.
24
Q
What is currency hedging?
A
A way to protect traders and investors from being exposed to the fluctuations of the spot rate.
25
What is strategic hedging?
A means of spreading out activities in different currency zones in order to offset the currency losses in certain regions through gains in other regions (currency diversification).
26
What are first mover advantages?
Proprietary, technological leadership, pre-emption of scarce resources, establishment of entry barriers to late entrants, avoidance of clash with dominant firms at home, relationships with key stakeholders.
27
What are late mover advantages?
Opportunity to free ride on first-mover investments, Resolution of technological and market uncertainty, First mover's difficulty to adapt to market changes.
28
What are the types of foreign market entries?
Non-equity and equity.
29
What does non-equity reflect?
Relatively smaller commitments to overseas markets. Determines firms MNE status.
30
What does equity indicate?
Relatively larger, harder-to-reverse commitments. Determines firms MNE status.
31
How do institutions reduce uncertainty?
Establish 'rules of the game' that economic players play by. By signaling which conduct is legitimate and which is not, institutions constrain the range of acceptable actions.
32
What is the regulatory pillar?
The coercive power of governments (laws, regs, rules).
33
What is the normative pillar?
Values, beliefs, and actions of other relevant players (norms, cultures, ethics).
34
What is the cognitive pillar?
The internalized, taken-for-granted values and beliefs that guide behavior.
35
What is a formal institution?
One that includes laws, regulations, and rules.
36
What is an informal institution?
One that includes norms, cultures, and ethics.
37
What are the core propositions of the institution-based view on global business?
(1) Managers and firms rationally pursue their interests and make choices within institutional constraints (bounded rationality).
(2) In situations where formal constraints are unclear or fail, informal constraints play a larger role in reducing uncertainty.
38
What is the institution-based view of global business grounded upon?
The dynamic interaction between institutions and firms, and considers firm behaviors as the outcome of such an interaction.
39
How is global business affected by democracy?
An individual's right to freedom of expression and organization.
40
How is global business affected by totalitarianism?
These countries often experience wars, riots, protests, chaos, and breakdowns, which result in higher political risk.
41
What is democracy?
Citizens elect representatives to govern the country on their behalf.
42
What is totalitarianism?
One person or party exercises absolute political control over the population.
43
What is civil law?
Law that uses comprehensive statutes and codes as a primary means to form legal judgments.
44
What is common law?
Law shaped by precedents and traditions from previous judicial decisions.
45
What is theocratic law?
A legal system based on religious teachings.
46
How do civil, common, and theocratic laws compare?
Common law has more flexibility because judges interpret the law, while civil law has less flexibility as judges only apply the law.
47
What is a property right?
The legal rights to use an economic resource and to derive income and benefits from it.
48
What are intellectual property rights?
Rights associated with ownership, primarily including rights associated with patents, copyrights, and trademarks.
49
What is a market economy?
One that is characterized by the 'invisible hand' of market forces—all factors of production should be privately owned.
50
What is a command economy?
One that is defined by a government taking all factors of production to be government-owned or state-owned.
51
What is a mixed economy?
One that has elements of both a market economy and a command economy.
52
What is an indifference curve?
A curve that shows consumption bundles that give the consumer the same level of satisfaction.
53
What are the four properties of an indifference curve?
(1) Higher indifference curves are preferred to lower ones.
(2) Indifference curves are downward sloping.
(3) Indifference curves do not cross.
(4) Indifference curves are bowed inward.
54
What is the marginal rate of substitution?
The rate at which the consumer is willing to trade off one good for the other.
55
What is a budget constraint?
The consumption bundles that the consumer can afford.
56
How might a budget constraint be impacted by an increase in income?
Additional bundles could be consumed with an increase in income.
57
How is a consumer's optimal point of consumption determined?
The point at which this indifference curve and the budget constraint touch.
## Footnote
The marginal rate of substitution equals the relative price of the two goods.
58
What is marginal cost?
The increase in total cost that arises from an extra unit of production.
59
How is marginal cost related to total cost?
The portion of total cost resulting from an extra unit of production.
60
What is the formula to calculate marginal cost?
Change in total cost divided by change in quantity.
61
If Dave's company has a total cost of $100 when quantity output is 5, and a total cost of $115 when quantity output is 6, what is the marginal cost of producing the 6th unit?
$15.
62
Total cost is made of two types of costs, what are they?
Fixed and Variable.
63
How does a firm determine to shut down in the short-run?
If the revenue that it would earn from producing is less than its variable costs of production.
## Footnote
P
64
What market structure is characterized as being 'price takers'?
Competitive markets.
65
What is a price taker?
One who must accept the price as the market determines.
66
When a market is characterized as being a price taker, what fundamental shape does the demand curve for this market take?
Horizontal line.
67
What is the demand curve for a perfectly competitive firm?
Horizontal line.
68
What is the demand curve for a monopolistic market?
Downward-sloping.
69
What does 'downward' sloping with regards to a demand curve mean?
The monopoly has to accept a lower price if it wants to sell more output.
70
Where do firms with market power determine the quantity of product/service they will produce?
A firm chooses a quantity of output such that marginal revenue equals marginal cost.
71
What is the primary goal/objective of a firm?
Maximize profit.
72
If the firm has price setting capacity, how will they use information about marginal costs and marginal revenues?
The monopolist's profit-maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve.
73
What are the basic distinctions between the market models?
Monopoly and Oligopoly have one to few firms, with limited products; entry is difficult. Monopolistic competition/perfect competition have many firms, with easy entry.
74
What fundamental truth is realized when studying the behavior of an oligopolistic firm?
Self-interest makes it difficult for the oligopolists to maintain the cooperative outcome.
75
How might an oligopolistic firm behave like a monopoly?
Forming a cartel and acting like a monopolist, but self-interest drives them towards competition.
76
What is the Federal Reserve's monetary control?
FOMC - Federal Open Market Committee and the open market operation, the purchase and sale of U.S. government bonds.
77
What are open market operations?
The purchase and sale of U.S. government bonds.
78
When the Fed buys bonds, what impact does this have on the money supply and aggregate demand?
An open-market purchase of bonds by the Fed increases the money supply.
79
When the Fed sells bonds, what impact does this have on the money supply and aggregate demand?
An open-market sale of bonds by the Fed decreases the money supply.
80
What is the discount rate?
The interest rate banks pay when borrowing from the Federal Reserve.
81
When the Fed reduces the discount rate, what impact will this have on the money supply and aggregate demand?
A lower discount rate encourages banks to borrow from the Fed, increasing the quantity of reserves and the money supply.
82
When the Fed increases the discount rate, what impact will this have on the money supply and aggregate demand?
Higher discount rate discourages banks from borrowing reserves from the Fed, reducing the quantity of reserves in the banking system.
83
What is the reserve ratio?
The fraction of total deposits that a bank holds as reserves.
84
What would the Fed need to do with the reserve ratio in order to increase the money supply?
Decrease the reserve requirements; therefore lowering the reserve ratio.
85
What would the Fed need to do with the reserve ratio in order to decrease the money supply?
Increase the reserve requirements; therefore raising the reserve ratio.
86
If the Fed uses monetary policy in a way that increases money supply, what effect will this have on interest rates?
Interest rates lower.
87
If the government uses fiscal policy to increase government spending what impact will this have on interest rates?
Raises interest rates.
88
If the government uses fiscal policy and cuts taxes, what effect will this have on interest rates?
Raises interest rates.
89
Explain the effect an income change might have on shifting the demand curve?
Lower income=less to spend in total=lower demand. Higher income=more to spend in total=raise demand.
90
What is a normal good?
A good for which an increase in income leads to an increase in demand.
91
What is an inferior good?
A good for which an increase in income leads to a decrease in demand.
92
Explain how the price of related goods is related to changes in the demand curve?
When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes. When a fall in the price of one good raises the demand for another good, the two goods are called complements.
93
What happens when the price of one good falls and reduces the demand for another good?
The two goods are called substitutes.
## Footnote
Example: yogurt for ice cream.
94
What happens when the price of one good falls and raises the demand for another good?
The two goods are called complements.
## Footnote
Example: hot fudge and ice cream.
95
If Luke drops his prices for paper, how will this impact the demand for my paper?
Your demand will decrease, and the demand curve will shift to the left.
96
What factors might influence the position of the demand curve?
Price of the good itself, income, price of related goods, tastes, expectations, and number of buyers.
97
What numerical value determines if a product/service is considered price elastic versus inelastic?
1 - greater than or less than.
98
What is income elasticity?
A measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income.
99
What is price elasticity of demand?
A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price.
100
Views on Globalization
New, Evolutionary, and Pendulum
101
Elastic
Quantity moves proportionately more than the
price (Price increase results in drastically lower
demand).
102
Inelastic
Quantity moves proportionately less than the
price (Price increase results in slightly lower
demand)
103
Unit elastic
Percentage change in quantity equals the percentage change in price.
104
Results from income elasticity
(1) Necessities, such as food and clothing,
tend to have small income elasticities.
(2) Luxuries, such as caviar and diamonds,
tend to have large income elasticities.
105
Cross-price elasticity
A measure of how much the quantity demanded of one good responds to a change in the
price of another good. Computed as the percentage change in quantity demanded of the
first good divided by the percentage change in
price of the second good. Substitutes=positive
cross-price elasticity; complements=negative
cross-price elasticity.
106
3 types of elasticity, their
equations, purpose and
outcomes
(1) Price elasticity of demand - % chg in Q D /
% chg in P
(2) Income elasticity - % chg in Q D / % chg in
income
(3) Cross-price elasticity - % chg in Q D Good
1/% chg in Good #2 P
107
. In the net, how are price (P)
and quantity (Q) changed
by a simultaneous increase
in demand and supply?
Price increases and quantity is ambiguous.
(Dependent upon how large of a shift in supply/demand)
108
. In the net, how are price (P)
and quantity (Q) changed
by a simultaneous increase
in demand and decrease in
supply?
Price increases and quantity is ambiguous.
(Dependent upon how large of a shift in supply/demand)
109
. In the net, how are price (P)
and quantity (Q) changed
by a simultaneous decrease in demand and supply?
Price is ambiguous, quantity decreases.
110
. In the net, how are price (P)
and quantity (Q) changed
by a simultaneous decrease in demand and increase in supply?
Price decreases, quantity ambiguous.
111
Tariff
Tax on goods produced abroad and sold domestically(tax on imported goods). A method
used to restrict international trade.
112
Dead weight loss.
The fall in total surplus that results from a market distortion, such as a tax (new equilibrium
price that is settled for the transaction will be
higher and therefore some burden of this will
be passed on to the consumer)
113
How are tariff's and dead
weight loss related? Explain
A tariff causes a deadweight loss because a
tariff is a type of tax. Like most taxes, it distorts
incentives and pushes the allocation of scarce
resources away from the optimum. (Oversupply and under demand)
114
Two primary categories of
trade barriers
Tariffs and Non-Tarif
115
If an import tariff is imposed on coconuts that are
imported into the U.S., how
will this impact the price
of coconuts for U.S. consumers?
Increase the price
116
Why might a government
be interested in imposing
an import tariff on a good?
What benefit would the
government derive primarily?
The tariff will reduce the amount of importans,
increase the amount of exports. The primary
benefit is that it raises revenue for the government.
117
How would imposing an import tariff on cigars impact
the domestic production of
cigars?
Quantity increases for exporting at world price.
118
If an import tariff on
coconuts was removed in
the U.S., how would this
impact the demand for
coconuts by U.S. consumers?
The demand would increase
119
What would happen to the
overall domestic demand
for a good if an import tarItiff were imposed on that
good?
It would increase
120
How does a tariff generally impact the following entities: consumers, producers, government? Compare
the effects between the entities
Domestic sellers are better off, and domestic
buyers are worse off. In addition, the government raises revenue.
121
Consumer surplus
The amount a buyer is willing to pay for a good
minus the amount the buyer actually pays for it
122
. Who receives consumer
surplus?
The buyer.
123
In relation to the demand
curve and price, how is
consumer surplus measured?
The area below the demand curve and above
the price measures the consumer surplus in a
market.
124
. Producer surplus
The amount a seller is paid for a good minus
the seller's cost of providing it
125
Who receives producer
surplus?
The seller
126
In relation to the demand
curve and price, how is producer surplus measured?
The area below the price and above the supply curve measures the producer surplus in a
market.
127
In what ways might government or policy makers
make use of surplus measures?
To measure the economic well being of a society, in terms of efficiency and equality. (i.e.
maximizing total surplus received (efficiency)
and distributing economic prosperity (equality)
uniformly among the members of society
127
. How is total surplus determined?
The total value to buyers of the goods, as
measured by their willingness to pay, minus the
total cost to sellers of providing those goods.
128
Macroeconomics
The study of economy-wide phenomena, including inflation, unemployment, and economic growth.
129
Microeconomics
The study of how households and firms make
decisions and how they interact in markets.
130
Why must income equal expenditure in an economy
as a whole?
An economy's income is the same as its expenditure because every transaction has two
parties: a buyer and a seller.
131
Gross domestic product
(GDP)
The market value of all final goods and services produced within a country in a given
period of time.
132
Four components of GDP
(1) Consumption (2) Investment (3) Govt purchases (4) Net exports
133
. Why are transfer payments
such as social security not
counted in government expenditures?
Because they are not made in exchange for
a currently produced good or service. Transfer
payments alter household income, but they do
not reflect the economy's production.
134
. Real GDP
The production of goods and services valued
at constant prices, ie. $1
135
Nominal GDP
The production of goods and services valued
at current prices, i.e. $1 in 2013, $2 in 2014,
etc...
136
Reason to measure GDP in
real terms
Because (answer) GDP is not affected by
changes in prices, changes in (answer) GDP
reflect only changes in the amounts being produced
